Business Context and Reporting Period
Company: AMERICA MOVIL SAB DE CV (America Movil)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Year ended December 31, 2003 (with comparative data for 2002 and 2001)
Filing Date: March 5, 2004
Accounting Basis: Mexican GAAP (financial statements restated for inflation in constant Mexican pesos as of December 31, 2003). No reconciliation to U.S. GAAP is included in this filing.
Overview: America Movil is the largest wireless provider in Latin America, operating in nine countries. The 2003 results were significantly impacted by the consolidation of five major acquisitions (Celcaribe, BSE, CTE, CTI, and BCP), which contributed 4.2 million new subscribers and 4.5% of operating revenues.
Key Financial Metrics (Year Ended Dec 31, 2003)
| Metric | 2003 (Ps. Millions) | 2002 (Ps. Millions) | Change |
|---|---|---|---|
| Operating Revenues | 85,941 | 59,743 | +43.9% |
| Operating Income | 17,960 | 12,980 | +38.4% |
| Operating Margin | 20.9% | 21.7% | -0.8 pp |
| Majority Net Income | 15,032 | 4,784 | +214.2% |
| EPS (Majority) | Ps. 1.19 | Ps. 0.35 | +239.9% |
| Cash Flow from Operations | 29,038 | 19,408 | +49.6% |
| Total Debt | 49,313 | 48,036 | +2.7% |
| Cash & Equivalents | 10,082 | 11,023 | -8.5% |
| Capital Expenditures | 13,653 | 11,250 | +21.4% |
Note: All amounts are in millions of constant Mexican pesos as of December 31, 2003.
Material Changes vs. Prior Period
- Revenue Growth: Driven by organic growth in Mexico (Ps. 10,058 million increase), full-year consolidation of Telecom Americas and Comcel, and the inclusion of five new acquisitions in 2003.
- Subscriber Base: Increased to 43.7 million wireless subscribers (up 38.4% from 31.6 million in 2002). Acquisitions accounted for 4.2 million of the 12.1 million new subscribers.
- Profitability: Majority net income surged to Ps. 15,032 million from Ps. 4,784 million. This was aided by a foreign exchange gain of Ps. 1,355 million in 2003, compared to a loss of Ps. 1,526 million in 2002.
- Cost Structure: Depreciation and amortization increased 61.3% to Ps. 13,878 million due to network investments and acquisitions, slightly compressing the operating margin.
- Geographic Mix: Mexico's share of total operating revenues decreased from 71.0% in 2002 to 61.0% in 2003 due to the consolidation of international acquisitions.
Guidance, Outlook, and Risks
Outlook and Capital Allocation
- 2004 Capital Expenditures: Budgeted at approximately U.S.$1.4 billion (Ps. 15.7 billion), primarily for GSM network rollout in Argentina and expansion in Mexico and Brazil.
- Dividends & Buybacks: The company paid Ps. 794 million in dividends in 2003 and Ps. 975 million in share repurchases. Quarterly dividends are expected to continue in 2004.
- Strategic Focus: Continued expansion of subscriber base through organic growth and strategic acquisitions in Latin America.
Risks and Contingencies
- Regulatory & Legal:
- Telcel (Mexico): Pending antitrust proceedings with Cofeco regarding distributor actions; potential fines or regulations if unsuccessful. Dispute with Cofetel regarding royalties on SMS services.
- CTI (Argentina): Senior notes in default are subject to a court-approved reorganization agreement (APE). A creditor has appealed the APE; if successful, obligations could be reinstated, though only U.S.$43.5 million remains outstanding with third parties.
- CompUSA: Pending appeal of a jury verdict regarding franchise agreements in Mexico. Damages were reduced by the trial court, but the appeal is pending.
- Guatemala (Telgua): Pending challenges to a 2001 settlement agreement regarding the privatization of Telgua.
- Market Risks: Exposure to currency fluctuations (76% of debt is non-peso denominated) and interest rate changes (42% of debt is floating rate). A hypothetical 10% depreciation of operating currencies against the USD would result in a Ps. 2.97 billion increase in net debt.
- Competition: Intense competition in all markets, particularly in Brazil and Mexico, which may pressure prices and subscriber acquisition costs.
Investor Verification Checklist
- GAAP Reconciliation: Verify the upcoming Form 20-F for the reconciliation of Net Income and Stockholders' Equity from Mexican GAAP to U.S. GAAP, as significant differences exist (e.g., inflation restatement).
- Acquisition Integration: Monitor the integration progress and financial performance of the five major 2003 acquisitions (Celcaribe, BSE, CTE, CTI, BCP), particularly the turnaround of Telecom Americas (Brazil) which reported an operating loss.
- Regulatory Outcomes: Track the resolution of the CTI (Argentina) debt restructuring appeal and the Telcel (Mexico) antitrust proceedings, as these could impact future cash flows or require provisions.
- Currency Exposure: Assess the impact of the Mexican peso and Brazilian real exchange rates on reported earnings and debt service costs.
- Capital Expenditure Execution: Verify the deployment of the U.S.$1.4 billion 2004 capital budget, specifically the GSM rollout in Argentina and Brazil.